The Seventh Characteristic of Money

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King Arthur - Monty Python and the Holy Grail said:
This new learning amazes me, Sir Bedevere. Explain again how sheep's bladders may be employed to prevent earthquakes.

The Six Characteristics of Money​

We are roughly a century into the grand experiment with a central bank fiat monetary world order (half a century on a pure fiat system). For many people, pure fiat money is all that they have ever known. The lessons of history with respect to money have been ignored, but not forgotten.

Over thousands of years of civilization, people have used many different mediums for money. The accumulated wisdom of those years are often distilled into these simple truths:
The Federal Reserve said:
Money functions as (1) a medium of exchange, (2) a unit of account and (3) a store of value.
But what features does your money need? Six characteristics have been identified: Money must be durable, portable, divisible, scarce, uniform and acceptable.

These functions and characteristics of money used to be well understood, but do not seem to be taught in schools any more.

Fiat money has failed to fulfill it's function as a store of value. Inflation has caused the US Dollar to lose significant value over the years:
Federal Reserve Bank of St Louis said:
... inflation reduces purchasing power. Data show the changing value of the dollar and its purchasing power. Figure 1 shows the value of the dollar set at 100 (representing full value) in 1983. The value of the dollar is 37 in 2021. This means that since 1983, the purchasing power of a dollar has been reduced by 63 percent. ...

As of this writing, the US Dollar is still fulfilling all six characteristics of money, but we may be nearing the point when acceptability comes into doubt - whether globally from dedollarization efforts or nationally from a currency (debt) crisis.

Cashless Societies​

As poorly as fiat money has performed as a store of value over the last century, it at least had one redeeming quality. Physical cash was still a bearer instrument that allowed for financial privacy. Two parties could engage in trade (or commerce) without need of engaging any third parties or middlemen for payment clearance.

That is slowly changing as we drift towards a cashless society with consumers willingly choosing to use electronic payment systems, banks/atms restricting or hampering access to cash and anti-money laundering laws/rules discouraging cash businesses (more on that a bit later).

Seventh Characteristic of Money​

It is the advent of computing technology and power which facilitates both a digital alternative to physical cash and the systems for surveillance and control that comes with third party clearing functionaries. This is new ground for monetary systems - there is no direct historical analogue for what is developing today.

That is probably why history only records six characteristics for money. It is with the development of digital money systems that a seventh characteristic for money becomes apparent:

Money should be free of counterparty entanglement

Where digital money systems require even the most basic transactions to involve third parties for payment clearance, there is no guarantee that money will fulfill it's function as a medium of exchange.

Digital Money Trades Convenience for Liberty​

There are currently three forms of digital money: central bank digital currency (CBDC), bank credit (electronic checking, credit/debit cards) and decentralized cryptocurrencies.

CBDCs and the various forms of bank credit all require at least one intermediary in the payment clearing process. People require their permission in order to effect (or clear) any transaction. In order to use these systems, people must cede control over the ability to conduct trade to the (one or more) third party clearing agent(s). In addition to this third party risk, there is a deprivation of privacy as all transactions are monitored, recorded and data mined.

Decentralized cryptocurrencies also depend upon a third party agent to clear a transaction, but in this case, the third party agent is a decentralized block chain - there is no central authority asserting control over the system, so there is less risk of central authority malfeasance. Transactions are necessarily recorded on a blockchain, but it is possible to obfuscate wallet ownership, so maintaining a degree of privacy is still possible, though not as ideal as using a true bearer instrument.

Anti-Money Laundering is Code for Financial Surveillance​

There are tidal forces at work to deter the use of cash. As mentioned previously, the drift towards a cashless society encompasses consumers willingly choosing to use electronic payment systems, banks/atms restricting or hampering access to cash and anti-money laundering laws/rules discouraging cash businesses.

The latter prong is particularly troubling as it is the lynchpin justification for both algorithmic debanking and the war on crypto. It's the fulcrum over which the seesaw of financial freedom teeters between security and liberty irrespective of the medium of money.

Sound Money for the Future​

As nations around the globe accelerate their work on CBDC development, there are some glimmers of hope for people who would prefer real, sound money. Money that respects both the three functions of money (including the store of value) and the seven characteristics of money (including no counterparty entanglement).

First, there are nascent efforts amongst various States to prohibit CBDC use. There has been some effort at the national level to curb CBDC development as well, but the champion of that effort is leaving Congress and it's not clear who, if anyone, might pick up that torch.

Second, thanks in large part to the efforts of the Sound Money Defense League, there is a growing movement amongst the States to recognize gold and silver as money. There are several levels to these efforts ranging from elimination of sales and capital gains taxes to promoting government payment systems to allow citizens to pay taxes or government (licensing) fees using gold and silver.

Third, some States are beginning to develop State owned and managed precious metals depositories. In 2023, Texas had several bills introduced that would have expanded the State's use of their gold depository including one that would have established a gold backed crypto token.

These State efforts may eventually achieve a critical mass just like the legalization of marijuana efforts and lead to a change in the national laws. Ideally, America might go GAULT and lead the world on the path back to real, sound money.
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As of this writing, the US Dollar is still fulfilling all six characteristics of money, but we may be nearing the point when acceptability comes into doubt - whether globally from dedollarization efforts or nationally from a currency (debt) crisis.
BRICS threatens the dollar more so than any time in history.
Money should be free of counterparty entanglement
Yes, and that's why I call CBDCs...electronic scrip.

Years ago, when I was a 20something liberal, I worked - for two years - as a welfare caseworker. I learned a lot there; but also a lot of how the system functioned.

One entitlement was called, back then, "Emergency Assistance" or EA. It was a separate entitlement, intended for families whose home burned down, or who rented from a slumlord and the property was unforseen event.

There was no cash money in it. EA would pay for a necessary utility bill, in case of a turn-off; short-term housing from approved suppliers (we had to warn users that if they spent that, they couldn't ask for more help for a security deposit, in a few weeks, when they found permanent shelter) or even cheap furniture - Alco Furniture Rental would sell used, at low prices, on an EA voucher.

Voucher. It wasn't cash. It was made out TO someone FOR something, and not just anything.

A voucher and scrip, are essentially the same. Neither are legal tender or payable to bearer. User had to be identified; vendor had to be approved; use and purchase had to have approval.

Critics used to argue that the EA rules were demeaning. They were; but that's kinda what happens when you become an indigent ward of the county.

This wonderful CBDC program will make us ALL wards of the Davos algorithms.
The ECB telling the world that fiat only works because government forces you to accept it or be punished. Could it compete with sound money without the legal tender monopoly racket? There is no free market with money.

Annual inflation targeting is planned value destruction.

Annual inflation targeting is planned value destruction.


The way I've heard it, the Fed was weighing the possibility of (insane) negative interest rates - which obviously are unsustainable; destruction of the value of money by lending it out. Who would bank money, in such a world?

The alternative they settled on was ZIRP plus a targeted slow-burn inflation.

Well, inflation is like fire. Controlled burns are hard, and especially when the undergrowth is rotted tinder. It's gotten out of hand, but they felt, given the Gimmedatz population of voters, they had no choice.

And here we are.
This thread is incomplete without a reference to "Tradition!":

A couple of months ago (more or less), Nick Giambruno published an article about gold, bitcoin and money. While overall, it had some decent points, I took issue with some of Nick's statements, which I detailed in a response posted here.

Well, Nick has posted another article recently purporting to compare bitcoin and gold. This article also gets few things wrong IMO (actually repeating some of the same problems I pointed out previously).

Nick Giambruno said:
... I’ll analyze the ten most decisive monetary attributes ...

Nick apparently has decided that there are more monetary attributes than are commonly known. And of course, he misses the seventh characteristic that I identified above: Money should be free of counterparty entanglement.

I'm not going to do an in depth critique of the article unless folks are actually interested to hear it, but the bottom line is that Nick's article appears to me to be heavily biased in favor of Bitcoin and somewhat myopic on the potential problems with Bitcoin.
Cross posting @searcher 's post in the Drumbeats for the Cashless Society thread:
Even by late 2020, Sweden had less cash in circulation than just about anywhere else in the world, at around 1% of gross domestic product, according to the latest available data. That compares with 8% in the U.S. and more than 10% in the euro area. As a recent piece in Interesting Engineering notes, Sweden is already “officially cashless”:
But now the country is beginning to realise that an almost exclusively digital payments system comes with significant risks, especially at a time of heightened geopolitical tensions. In time-honoured fashion, the article in the UK Telegraph began with a spot of fearmongering about Vladimir Putin.

“People started to realise that it is very easy for Vladimir Putin to switch everything off,” Björn Eriksson, a retired police chief, former head of Interpol and leading cash advocate, told the Telegraph. “At first we were arguing for vulnerable people, the elderly, women in abusive relationships who rely on cash… Now we are talking about national security. And it’s not only Putin, it could also be organised crime.”
Put another way, cash does not crash. It does not fail in a power cut or seize up during a cyber attack (though, of course, ATMs might). By contrast, digital payment systems need a stable and continuous internet connection to process transactions. When these connections fail, the result is often chaos. Digital payment outages have caused significant disruption in a host of countries in recent years, including the US, the UK, Australia, Indonesia, Germany, Canada, Spain and Norway. Generally speaking, the more cashless the country, the greater the disruption.

... or a natural disaster (flood, earthquake, tornados, etc.) or central authority malfeasance or any number of risks can impair digital money from fulfilling it's function as a medium of exchange.
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